Han Products manufactures 30,000 units of part S-6 each year for use on its prod

Question

Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 3.60 10.00 2.40 9.00 Total cost per part $ 25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $80,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: 1. Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.) Per Unit Differential30,000 Units Costs Make BuyMake Buy Cost of purchasing Cost of making: Direct materials Direct labor Variable overhead Fixed overhead Total cost 0.00 000 0

Explanation / Answer

Answer 1. Per Unit Differential Costs 30,000 Units Make Buy Make Buy Cost of Purchasing         21.00    630,000.00 Cost of Making: Direct Materials           3.60    108,000.00 Direct Labor         10.00    300,000.00 Variable Overhead           2.40      72,000.00 Fixed Overhead - Traceable           3.00      90,000.00 Rental Value of Space - Oppourtunity Cost         (2.67)    (80,000.00) Total Cost         19.00         18.33    570,000.00    550,000.00 Answer 2. Profits would increased by $20000 ($570,000 - $550,000).

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